In the wake of the country’s recent unrest, looting and property damage, those leading government have decided that reprioritising expenditure will solve these problems. However, in reality this is a piecemeal solution that is unlikely to stimulate the economy.
The truth is that the economy needs stimulus, yet government has shown that it prefers austerity and fiscal consolidation. The hard and over-the-top lockdown has had a devastating effect on the economy. More than that, it has worsened widespread poverty and unemployment.
I recoil from the assertion that the administration of the democratic dispensation marked a defining moment in the socio-economic wellbeing of our society, because the real impact is often evident with the benefit of hindsight.
For one thing, regardless of the president, from an economic viewpoint ANC rule has been a disaster.
Where we are
First, the Gini coefficient has increasingly soared post-apartheid.
Second, since late 2009/2010 the economy has been defined by a decade of recession that has seen growth trend downwards and contributed to the widening inequality gap.
Third, investment in new and essential infrastructure (for example electricity and dams) has declined, while the maintenance of existing infrastructure has become costly.
Fourth, there is the facilitation of insidious, systematic state capture (the other side of the coin being the more well-known individual unlawful acts like corruption).
The latter has resulted in an incapacitated state; a state unable to reduce unemployment or finance productive investment through the employment of idle resources and labour.
Despite my reluctance to call a particular moment of a different administration a turning point, if there was to be an alarm to warn of danger ahead, now would be the time for it to sound.
If we are to evaluate the current presidency solely from an economic standpoint it has been nothing but a disaster – even on seemingly straightforward issues such as public sector wages.
Cut public sector wages … except ministers’?
Consider that while the finance minister’s rhetoric of curbing spending has mainly been directed towards public sector wages, the president has made a case for increments for his cabinet ministers who are pleading poverty.
This is a large contradiction.
It is therefore unforgivable that mainstream economists who picked apart the previous presidency’s policies have been quiet on the catastrophic macroeconomic approach of the current administration at a time of lockdowns that are devastating the economy.
Cut expenditure … during a time of recovery?
One contradiction is National Treasury’s fiscal consolidation by cutting expenditure and employing austerity measures on vital sectors like healthcare, infrastructure, education and the police, yet talking about recovery at the same time.
Surely now is the time to ask (especially the economists) how an economy in dire need of stimulus because of conditions that existed before and during Covid can be in recovery?
Where is the loud calling for economic accountability and stewardship? Or do we reserve those for matters of morality in politics?
How can ordinary South Africans be subjected to the burden of the ANC-led government and its insistence on neoliberal economic policies?
No funding for productivity programmes … but funding for grants?
Another contradiction inherent in government policy and the central bank is a reluctance to use monetary policy to fund productivity and government programmes and also to put money (stimulus) into the economy and not to employ austere rerouting (the recently reallocated R2.6 billion from other departments) into the current band-aid of economic relief and support packages.
The consequences of these policies
Thus far we have seen a glimpse of the consequences of these policies: more poverty, more unemployment, and a volatile environment.
Why is there a muted position on the negative effects of austerity when the over-the-top lockdown has led to a significant increase in the food price, in addition to rising costs of water, electricity and fuel?
So, austerity or stimulus?
For some, austerity might be seen as needed and even necessary. They might argue that amid the lack of growth plans and investment strategies to get the country out of the crisis, austerity as a stabilising tool may be just what the country needs.
However, is it not true that even in advanced economies tight monetary policies can also have adverse effects on investment – as evidenced in the productivity slowdowns of advanced economies prior to the global crisis.
In turn, the slowdowns undermined the TPF – the total productivity factor – when the crisis occurred. Constrained investment because firms’ balance sheets were weakened, resulting in muted investment in high-risk, high-return projects.
What to be most worried about
In the case of South Africa, if you are worried about the negative effect of uncontrolled government spending, rising debt, government hiring, and public sector wages, you must be equally be worried about the merging of politics, greed, corruption and policy choices.
I say you must be worried because, to cite one example, despite the recovery plan and now the economic support package, the presidency and the treasury are yet to clearly outline how the government intends to (i) address the socio-economic conditions of the majority of the populace, and (ii) reboot the economy.
Ultimately, it is critical to seek a dissimilar and even new approach to macroeconomic policy if the country is to have a structural transformation of its economy.
However, as I have argued elsewhere on Moneyweb, it is politics and politicians that thwart any chance for socio-economic relief-oriented policy.
Unfortunately the ruling party has shown itself to be interested in change only if it affects or could possibly threaten its political future. South Africa today faces far weightier economic challenges.
Gloomily, the solution will not come from this government.